For the year ended 31st March 2002

Toa Re’s advanced capabilities are founded on the accumulated skills and experience

of its professional staff.

REPORT AND ACCOUNTS

2002

1 Consolidated Financial Highlights

2 Non-Consolidated Financial Highlights

3 A Message from the President

8 Corporate History

9 Organization

10 Overseas Network

12 Protecting the Global Environment

13 Review of Operations

15 Financial Section

28 Board of Directors

28 Corporate Data

Profile

The Toa Reinsurance Company, Limited (Toa Re), was established in 1940.

As the reinsurance market diversifies and customers’ needs expand, we recognize the need to be

able to provide a wide range of life and non-life reinsurance products to lead

the market as Japan’s primary professional reinsurer.

The Company is based in Tokyo with subsidiaries in London, New Jersey

and Graubünden (Switzerland). Strong demand for reinsurance products in East Asian countries

prompted us to expand our operations in that region with branch offices in Singapore, Kuala

Lumpur and Hong Kong.

In recognition of Toa Re’s strong financial profile, credit rating agencies Standard & Poor’s,

A.M. Best Company, Inc. and the Japan Credit Rating Agency, Ltd., have assigned

Toa Re ratings of AA–, A+ and AA+, respectively.

As of 31st March 2002, the Toa Re Group boasted total assets of ¥455.2 billion. Net premiums

written during the fiscal year ended 31st March 2002, amounted to ¥126.1 billion.

Contents

Notes:

All U.S. dollar figures in this report have been converted from yen, for convenience only, at the rate of ¥133.25=US$1, which prevailed on31st March 2002.

When truncating figures and rounding off percentages, no attempt was made to reconcile totals and breakdowns. Minor discrepancies maytherefore be found when individual numbers are added together and compared with the totals shown.

All premiums shown are net of profit commissions.

1

Consolidated Financial HighlightsThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesYears ended 31st March

Thousands ofMillions of yen U.S. dollars

2002 2001 2000 1999 1998 2002

For the fiscal yearOrdinary income ¥156,215 ¥149,614 ¥144,203 ¥138,440 ¥129,309 $1,172,345Net premiums written 126,115 119,050 116,246 122,340 115,601 946,454Ordinary profit (loss) (1,028) 7,239 3,974 4,841 8,633 (7,714)Net income (loss) (37) 4,633 3,228 4,031 2,610 (277)

At fiscal year-endTotal shareholders’ equity 121,257 44,979 47,974 36,951 33,542 909,996Total assets 455,262 338,773 355,160 297,979 307,740 3,416,600

Yen U.S. dollars

Per share dataShareholders’ equity ¥1,212.57 ¥449.79 ¥479.74 ¥369.51 ¥335.42 $9.10Net income (loss) (0.37) 46.33 32.28 40.31 26.10 (0.00)

Percent

Key ratiosShareholders’ equity ratio 26.63% 13.28% 13.51% 12.40% 10.90%Return on equity (ROE) ratio (0.05) 9.97 7.60 11.44 8.02

Net Premiums Written(Billions of yen)

Net Income(Billions of yen)

Total Assets(Billions of yen)

116.2 119.0126.1

115.6122.3

4.0

3.2

4.6

2.6

297.9

355.1338.7

307.7

140

105

70

35

0

4.8

3.6

2.4

1.2

0.0

480

360

240

120

0

20022001

20001999

19982002

20012000

19991998

20022001

20001999

1998

-0.0

455.2

2

Non-Consolidated Financial HighlightsThe Toa Reinsurance Company, LimitedYears ended 31st March

Thousands ofMillions of yen U.S. dollars

2002 2001 2000 1999 1998 2002

For the fiscal yearNet premiums written ¥099,329 ¥100,999 ¥103,313 ¥109,699 ¥111,155 $0,745,433Underwriting profit (loss) (13,356) 1,545 (7,039) (3,255) (488) (100,232)Interest and dividends income 6,080 7,396 8,559 8,178 7,496 45,628Ordinary profit 1,169 4,508 2,181 2,220 7,458 8,772Net income 844 2,311 1,811 2,241 2,148 6,333

At fiscal year-endInvested assets 321,376 202,380 208,815 212,584 225,798 2,411,827Total assets 368,517 281,354 302,769 255,712 260,341 2,765,606Underwriting reserves 151,726 158,106 172,915 135,353 137,638 1,138,656Paid-in capital 5,000 5,000 5,000 5,000 5,000 37,523Total shareholders’ equity 111,816 41,667 39,967 32,633 31,002 839,144

Yen U.S. dollars

Per share dataShareholders’ equity ¥1,118.16 ¥416.67 ¥399.67 ¥326.33 ¥310.02 $8.39Declared dividends 6.00 6.50 6.00 6.00 6.00 0.04Net income 8.44 23.11 18.11 22.41 21.48 0.06

Percent

Key ratiosNet loss ratio 63.45% 71.75% 77.41% 65.89% 59.72%Net expense ratio 32.94 35.82 37.03 39.45 38.40Return on investment 2.86 3.45 3.79 3.50 3.11Shareholders’ equity ratio 30.34 14.81 13.20 12.76 11.91Return on equity (ROE) ratio 1.10 5.66 4.99 7.05 7.11Payout ratio 71.02 28.13 33.13 26.76 27.93

Net Premiums Written(Billions of yen)

Net Income(Billions of yen)

Total Assets(Billions of yen)

103.3 100.9 99.3

111.1 109.6 2.2

1.8

2.3

0.8

2.1

255.7

302.7281.3

368.5

260.3

120

90

60

30

0

2.4

1.8

1.2

0.6

0

400

300

200

100

0

20022001

20001999

19982002

20012000

19991998

20022001

20001999

1998

3

A Message from the President

Shinya Yoshikoshi

Business Environment and Consolidated Fiscal Results

The domestic economy continued to pose challenges

in fiscal 2001, ended 31st March 2002. Although

consumer spending held steady, Japan and other

economies around the world suffered parallel set-

backs, following the nearly simultaneous execution

of terrorist attacks in the United States on Septem-

ber 11, 2001. The prevailing business environment,

which was compounded by sluggish export activity

and reduced production, precipitated a rise in Japan’s

unemployment rate to an unprecedented high.

In the domestic insurance industry, competition

grew fiercer, as the pace of realignment through

mergers picked up and progress in deregulation and

liberalization caused premium rates to decrease and

the coverage to widen. The terrorist attacks in the

United States had far-reaching effects, as huge pay-

ments on reinsurance from abroad seriously affected

the results of insurance companies.

The reinsurance market became harder than

before, with repercussions from the September 11

terrorist attacks providing the primary catalyst. The

situation prompted insurers to stress terror-risk

liability and restrict the underwriting terms and

conditions accepted. The situation also reduced

underwriting capacity.

Amid the challenges, Toa Re Group posted mixed

results. Ordinary income grew 4.4% over the previ-

ous fiscal year, to ¥156.2 billion, but ordinary ex-

penses still climbed 10.4%, to ¥157.2 billion,

primarily owing to an increase in provision for out-

standing claims by the U.S. subsidiary. Consequently,

Toa Re Group showed an ordinary loss of ¥1.0 bil-

lion, compared with ordinary profit of ¥7.2 billion in

fiscal 2000, and a net loss of ¥37.0 million, compared

with net income of ¥4.6 billion a year earlier.

Strategic Perspectives

Fiscal 2001 was the first year of “Progress 21,” our

current five-year management plan, and the year

will be remembered for the chaos and gloom that

cast somber social and economic shadows worldwide.

The operating environment was already extremely

challenging when terrorist attacks executed simulta-

neously in the United States on September 11, 2001,

further compounded the situation. The repercus-

sions for domestic and international reinsurance

markets were indisputably disastrous.

Toa Re persevered amid these difficult conditions,

determined to achieve the goals stated in “Progress

21”. Management and staff diligently applied their

skills and their hearts to raise client satisfaction,

4

secure higher profits and contribute to society. We

all resourcefully adhered to strategies that would

turn unprecedented industry challenges into reward-

ing opportunities.

Non-Life Reinsurance

The reinsurance needs of our markets have changed,

paralleling liberalization, deregulation and other

developments. To properly address new demand and

effectively provide the services our markets require,

we adopted proposal-style marketing, which helps

us customize products and services to each client.

We also focused on obtaining higher profits through

more prudent underwriting, while in new areas,

such as the co-operative reinsurance and third-sector

fields, we worked resourcefully to attract new clients

and promote new businesses.

Life Reinsurance

In Japan, our efforts were channeled toward accu-

mulating more transactions, strengthening our mar-

keting capabilities, building a better underwriting

system, enriching our operating structure and sharp-

ening our competitive edge. We also prioritized

a higher profile in life reinsurance business, and

toward this end, we employed proposal-style mar-

keting to capture client interest and sought permis-

sion to offer co-operative life reinsurance. Elsewhere

in Asia we stepped up efforts to market reinsurance

products.

Overseas Operations

The terrorist attacks in the United States reduced

capacity in the international reinsurance market and

made us reexamine the conditions in a hardening

market. In this climate, we focused our attention on

broadening our client base in East Asia, a pivotal

market for us, and emphasized higher profits

through prudent underwriting.

Supported by growth at The Toa Reinsurance

Company of America, a foreign subsidiary, we made

progress in the establishment of a structure that

facilitates access by the entire Toa Re Group to the

sophisticated, leading-edge technologies, underwrit-

ing skills and complementary information and

know-how cultivated in the U.S. market. Timely

access to this spectrum of expertise and experience

promotes a synergistic effect that enables members

of the Group to maximize their potential.

In January 2002, we set up The Toa 21st Century

Reinsurance Company, Limited, in Switzerland to

handle reinsurance. We expect the new subsidiary to

enhance overall Company operations. For example,

we will reassign some of the risk we carry for natural

disasters in Japan to the Swiss subsidiary, and thereby

augment our underwriting capacity. We also antici-

pate that the subsidiary’s contribution to stable asset

investment will buoy groupwide internal reserves.

Investment

The investment environment remained formidable,

influenced by such factors as sluggish conditions in

domestic stock markets and ultralow interest rates.

We therefore stressed profitability, security and

liquidity in our investment choices to ensure the

best results possible under difficult circumstances.

5

Retaining a High Rating

Toa Re maintained previously acquired high ratings

from international rating agencies. We retained

ratings of A+ from A.M. Best Company, Inc.; AA–

from Standard & Poor’s; and AA+ from the Japan

Credit Rating Agency, Ltd. Such ratings present

an objective evaluation that is underpinned by a

high level of creditworthiness and contributes to

a distinguished profile at home and abroad.

Environmental Protection Activity

Management and staff have acquired a good under-

standing of environmental issues and have whole-

heartedly embraced our chosen theme—Preventing

Global Warming. We continue to highlight topics

related to environmental protection and also

encourage participation in activities outside the

Company that benefit local communities and

society at large.

Compliance and Risk Management

We fully appreciate the indispensability of appropri-

ate compliance and risk-management practices to

corporate stability and consider the implementation

and observance of relevant measures a management

priority. In April 2001, we initiated a full-scale

compliance and risk-management response with the

introduction of the Basic Policy for Risk Management

and the enactment of Rules for Risk Management

and Rules of Compliance.

In January 2002, we established the Internal Audit

Department and set in place a structure for monitoring

the internal control status of all business activities

within the Toa Re Group. The new department,

which is independent from the other departments,

represents a stronger commitment to impartial

assessment of business activities.

Toward the Success of “Progress 21”

As mentioned earlier, in April 2001 Toa Re embarked

on “Progress 21,” a five-year management plan.

The plan, which lays the groundwork for corporate

growth in the 21st century, comprises two steps.

The steady achievement of goals stated in each step

will support the successful transformation of Toa Re

into a comprehensive risk-management company.

The first step, which concludes on 31st March

2003, has two objectives: one, to capitalize on the

positive aspects of a hard underwriting market and

expand profits from the reinsurance business; and

two, to secure solid returns on asset investment.

We will begin formulating strategies and objectives

for the second step in autumn 2002 to ensure it

accurately reflects our operating environment.

The inaugural year of “Progress 21” was character-

ized by incredibly difficult and in some respects

rather unexpected challenges. The massive losses

arising from the terrorist attacks in the United States

were unavoidable but certainly exacerbated the

negative issues linked to a lackluster domestic stock

market and ultralow interest rates.

Despite the perils of our operating environment,

we will make an effort to sustain good results, owing

to an excellent financial footing and greater applica-

tion of corporate originality and ingenuity in our

business activities.

6

The Toa Re Group

Management Strategies

The reinsurance market was already showing signs

of hardening, especially from the spate of natural

disasters in recent years, but the event that really

had a severe impact on the industry was the terrorist

attacks in the United States. The arduous conditions

are likely to persist, at least for a while. But as al-

ways, Toa Re will seek to maximize opportunities

that appear from within the turmoil and will adopt

a more future-oriented profit structure to evolve

with the times.

We will also heighten the expertise and intelli-

gence (“E&I” = Knowledge) of all employees and

further improve the level of training so that we can

provide clients with consistently top-quality services.

In addition, we want decision-making processes to be

more efficient and certainly swifter, which will facili-

tate achievement of stated goals in Step One of

“Progress 21”.

Business Strategies

In the domestic non-life reinsurance sector, Toa Re

will resourcefully tackle new business aligned with

the new market structure. We also aim to maintain

and then expand premiums and profits through

such measures as fine-tuning our portfolio, tighten-

ing underwriting conditions and utilizing capacity

more effectively.

In the overseas non-life reinsurance sector, we will

prioritize higher profits gained through transactions

from a wider client base. In East Asia, we will build

a profit-focused portfolio hinging on the execution

of strict underwriting practices. In the United States

and Europe, we will strengthen ties with local sub-

sidiaries, particularly The Toa Reinsurance Company

of America, to elevate our profile in respective markets.

And we will enter markets tapped for liberalization

with timely responses to evolving needs.

Another vital strategy is to secure stable profits

from broader portfolios in the life reinsurance and

co-operative reinsurance markets. We are especially

keen to deepen recognition of “Toa Re” at home

and abroad in the life reinsurance arena and hope to

obtain new contracts based on the trust we have

earned and the actual results we have attained in the

field of non-life reinsurance.

Co-operative reinsurance is a promising field, and

we expect this segment of business to become a pil-

lar of operations. We are enthusiastically working to

expand our presence in this field, and our activities

currently center on a team formed in June 2001.

This team concentrates on co-operative reinsurance

Corporate Vision

■Management PolicyAs a Japanese primary reinsurer, we will, with the full participation of employees, strive to become a comprehensive risk-management company boasting “E&I”—expertise and intelligence—in the core area of reinsurance and in emerging business areas.

■Business StructureDevelop “E&I”

■Processes and SystemsEmphasize vision-oriented, goal-driven management

■Corporate CultureCreate an open working environment

Corporate VisionCorporate Vision

7

share this view and through swift and accurate

decision-making and timely and efficient business

processes, we will design products and services that

anticipate market developments.

We will draw on the Group’s potential and strive

to be a comprehensive risk-management company on

the world stage. I ask for your continued confidence

in the efforts of Toa Re.

August 2002

Shinya Yoshikoshi

President and Chief Executive

business and develops precise schemes geared to the

needs of individual mutual aid societies.

Financial Footing

Like underwriting, investment is an extremely

important profit resource for the Toa Re Group.

We will continue to strengthen the capabilities of

the Investment Department to ensure a solid finan-

cial footing on a groupwide basis. More concretely,

we will restructure our portfolio, based on asset and

liability management reports, market trends and

current-value accounting, to secure stable profits.

In Conclusion

Our operating environment is in a state of tremen-

dous change. To overcome the prevailing obstacles

that characterize these times, we must embrace new

approaches—go beyond existing methods and con-

ventional ideas. All members of the Toa Re Group

8

Corporate History

9

Personnel

Accounting

Secretary*

Team 1

Team 2

Planning & Infrastructure

System Development

Operation & Support

Planning & Management

Product Line Team 1

Product Line Team 2

International Planning

Representatives

Claims Control

Client Services

Administration

Client Services Team 1

Client Services Team 2

Administration

Client Services Team 1

Client Services Team 2

Marine Hull

Marine Cargo

Motor

Aviation

Team 1

Team 2

Team 3

Branches

Representatives

Planning

Administration

Equities

Fixed Income & Loans

Management Planning

Compliance

Internal Audit

Communication &Coordination

Information Technology

Underwriting & Planning

Life Underwriting & Planning

Domestic Marketing 2

Domestic Marketing 1

Reinsurance Pool

Overseas Marketing

Investment

Planning & Management

Administration

Overseas Business Management

Department Group Team (*Section)

Corporate Strategy

Corporate Finance

OrganizationThe Toa Reinsurance Company, LimitedAs of 15th July 2002

10

Overseas Network

■BranchesSingapore143 Cecil Street, #26-01 GB Building,Singapore 069542Telephone: 65-6220-0123Facsimile: 65-6222-5383

Kuala LumpurLevel 5, Menara Chan 138 Jalan Ampang,50450 Kuala Lumpur, MalaysiaTelephone: 60-3-2732-5911Facsimile: 60-3-2732-5915

Hong KongRoom 801, 8th Floor, Admiralty Centre,Tower 1, 18 Harcourt Road, Hong KongTelephone: 852-2865-7581Facsimile: 852-2865-2252

■Representative OfficesU.K.40 Lime Street, London EC3M 7AW, U.K.Telephone: 44-207-621-8668Facsimile: 44-207-621-8660

U.S.A.177 Madison Avenue, P.O. Box 1930,Morristown, NJ 07962-1930, U.S.A.Telephone: 1-973-898-9816Facsimile: 1-973-539-2483

Taiwan4th Floor, 128 Min Sheng East Road,Sec 3, Taipei 105, Taiwan R.O.C.Telephone: 886-2-2715-1015Facsimile: 886-2-2715-1628

■SubsidiariesU.K.The Toa-Re Insurance Company (U.K.) Limited40 Lime Street, London EC3M 7AW, U.K.Telephone: 44-207-621-8668Facsimile: 44-207-621-8660

U.S.A.The Toa Reinsurance Company of America177 Madison Avenue, P.O. Box 1930,Morristown, NJ 07962-1930, U.S.A.Telephone: 1-973-898-9480Facsimile: 1-973-898-9495

CanadaThe Toa Reinsurance Company of America(Toronto branch)402 Bay Street, Suite 2420, P.O. Box 17,Toronto, Ontario M5H 2Y4, CanadaTelephone: 1-416-366-5888Facsimile: 1-416-366-7444

SwitzerlandThe Toa 21st Century Reinsurance Company, Ltd.Gäuggelistrasse 20, 7000 Chur, Graubünden, SchweizTelephone: 41-81-253-0274Facsimile: 41-81-253-0275

11

Toa Re America

The global insurance and reinsurance industry wascompletely unprepared for, and in a very real sense,overwhelmed by, the tragic events of September 11th.The massive loss of life coupled with property destruc-tion of staggering proportions combined to producethe worst insurance loss ever. Virtually all major lineswere impacted—life, health, workers’ compensationand aviation, as well as the basic property and casualtycoverages—and the true cost will probably not beknown for years to come.

Although reinsurance pricing and terms were al-ready improving gradually prior to the attack, all plansand forecasts changed dramatically thereafter. The newoperating environment for reinsurers produced signifi-cant changes in contract terms, substantial price in-creases and a major contraction of capacity. Thedamage to many reinsurers’ capital positions, com-bined with the improvement in terms, encouraged thedeployment of new capital, primarily in Bermuda, topartially offset the loss of capacity.

Toa Re America felt the impact of the World TradeCenter destruction, as we absorbed a net loss of $30 mil-lion from the September 11th attacks. However, ourlosses were less than 50% of those resulting fromHurricane Andrew in 1992, and were much less, on aproportional basis, than those of many of our competi-tors. Our net operating loss was limited to about $8million, while other financial indices continued toimprove. Both production (+32%) and assets (+22%)grew substantially, and operational cash flow improved48%, to $79 million.

Of course, the financial results of 2001 tell only asmall part of the story; much more devastating was thepersonal tragedy visited upon our friends, neighbors andbusiness associates. The statistical results were not whatwe would have expected; however, we were able to sur-vive the year with no direct loss to our employees or ourproperty. For that we are extremely grateful. Moreover,we begin 2002 in a very strong capital position withpositive outlooks for both the Canadian and U.S.markets, and we are poised to expand upon our growthof the last few years.

The Toa Reinsurance Company of America

22.1%

4.7%

Property

Casualty

Auto Liability

A&H

Financial Guaranty38.5%

0.4%Gross Premiums by Class

34.3%

Financial Highlights

U.S. GAAPYears ended 31st December

(U.S. dollars in thousands) 2001 2000 %

Summary of Operations

Gross Premiums Written $236,918 $178,755 32.5%

Net Premiums Written 201,802 157,313 28.3

Pre-Tax Net (Loss) Income (18,124) 17,377 (204.3)

After-Tax Net (Loss) Income (8,158) 13,819 (159.0)

Balance Sheets

Total Assets 915,311 752,067 21.7

Total Liabilities 624,911 449,276 39.1

Total Stockholders’ Equity 290,400 302,791 (4.1)

Cash Flows

Net Cash from Operations 78,862 53,182 48.3

William L. Munson, Chairman & CEO, Toa Re America

Head office in New Jersey

12

Raising Awareness We encourage comprehensive recycling and adherenceto energy-saving rules through an in-house newsletterand an “Environment Card,” to be kept always on hand,that helps executives and employees better understandworldwide environmental issues and act accordingly.

Getting Everyone to Think about the EnvironmentUnder the supervision of the Ministry of the Envi-

ronment, we created the Econosaurus Eco Calendarfor 2002. This fun and informative calendar featuresEconosaurus, the cartoon character that teaches usabout environmental activities.

The calendar can be used to determine the amount ofcarbon dioxide (converted into carbon weight using achart) emitted through everyday use of such resourcesand energy as fuel, water andelectricity as well as the dis-posal of garbage. It shows theimpact that carbon dioxideemissions have on the envi-ronment, and how importantit is to reduce emissions,starting by motivating peopleto modify their daily routines.

Wider Understanding—Community Spirit

Making preservation of the environment a corporate philosophy, Toa Re is energetically tackling environmentalissues closely connected to our insurance operations. One topic of particular interest is global warming; we areworking to heighten awareness of the problem among executives and employees, as well as encouraging activities inthe neighborhood surrounding our head office, the Chiyoda district of Tokyo, that will help halt the warming trend.

United Appeal—In-House Efforts

Protecting the Global Environment

Toa Re distributed calendars to executives and staffas well as to elementary school children in the Chiyodadistrict of Tokyo and other elementary schools inremote areas of the country. It is our belief that eachperson, regardless of age, can influence others inadopting an eco-friendly lifestyle.

The Gift of Books on the EnvironmentAs in the previous year, Toa Re celebrated Earth

Day—April 22—by presenting books about environ-mental problems to eight elementary schools in theChiyoda district. Such books help children develop akeen awareness of environmental issues, which is vitalto the perpetuity ofa sustainable Earth,as it is today’syoungsters whocarry the responsi-bility for a viabletomorrow.

13

Review of OperationsThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesYears ended 31st March 2002 and 2001

Profit and Loss Analysis

Toa Re Group posted consolidated ordinary income of ¥156.2 billion, a ¥6.6 billion year-on-year improve-ment, primarily because investment income grew ¥7.7 billion, to ¥24.1 billion, and offset a ¥1.1 billiondrop in underwriting income, which settled at ¥131.7 billion. Ordinary expenses increased by ¥14.8 billion,to ¥157.2 billion, largely owing to a ¥17.9 billion rise in underwriting expenses, to ¥143.9 billion, a ¥3.5billion decrease in investment expenses, to ¥3.7 billion, and a ¥550 million increase in underwriting andgeneral administrative expenses, to ¥9.2 billion.

Consequently, the Group recorded an ordinary loss of ¥1.0 billion, compared with ordinary profit of ¥7.2billion in fiscal 2000. This is chiefly due to an increase in provision for outstanding claims by the U.S. sub-sidiary. After accounting for extraordinary profit and loss and various corporate taxes, Toa Re Group showeda consolidated net loss of ¥37.0 million, down ¥4.6 billion from a net income of ¥4.6 billion a year earlier.

The Group’s business results by insurance category are presented below.

Fire

Net premiums written climbed 14.5%, to ¥34.3 billion. The net lossratio was 50.6%, down 10.7 percentage points.

Marine

Net premiums written rose 13.2%, to ¥7.4 billion. The net loss ratiowas 69.4%, down 6.8 percentage points.

Motor

Net premiums written dropped 17.9%, to ¥28.9 billion. The net lossratio was 80.4%, down 18.2 percentage points.

Liability

Net premiums written surged 50.0%, to ¥27.2 billion. The net lossratio was 36.6%, up 0.9 percentage point.

Life Reinsurance

Net premiums written fell 13.5%, to ¥8.2 billion. The net loss ratiowas 52.2%, up 10.5 percentage points.

Others

This category comprises a wide range of insurance policies, including Transit, Personal Accident, Contractors’All Risks and Movables Comprehensive. Net premiums written increased 1.9%, to ¥19.7 billion. The net lossratio was 74.4%, up 6.9 percentage points.

Net Premiums Written 2002(Millions of yen)

27.27%

5.92%

22.96%

15.67%

6.56%

21.62%

Fire

Marine

Motor

Liability

Life Reinsurance

Others

27.27%

5.92

22.96

21.62

6.56

15.67

¥ 34,393

7,464

28,955

27,269

8,274

19,758

¥126,115 100.00%Total

14

Invested Assets

Total assets stood at ¥455.2 billion on 31st March 2002, climbing34.4% from a year earlier. Invested assets accounted for ¥391.5billion, or 57.7% more than in the previous fiscal year, andrepresented 86.0% of total assets.

Major invested assets by segment were cash in bank, at ¥32.5billion—7.2% of total assets; money held in trust, at ¥8.6 bil-lion—1.9% of total assets; securities, at ¥321.0 billion—70.5%of total assets; loans, at ¥9.7 billion—2.1% of total assets; andland and buildings, at ¥19.1 billion—4.2% of total assets.

Of investment income, interest and dividend income reached¥11.5 billion, while return on investment was 4.2%.

RST (The Reinsurance Seminar of the Toa)

The main role of the RST program is to offer Toa Re’s clients in Asia a series of presentationson topics related to the Japanese insurance market and reinsurance services. The RSTprogram also provides an opportunity for wide-ranging discussions and frank exchangeswith participants, promoting stronger ties with our clients.

Seminar of Toa Elementary Program (the “STEP”)

Every summer, Toa Re holds the “STEP,” a seminar for junior staff members working indirect insurance companies in Japan. The year under review saw the thirteenth such seminar,which focused on fundamental principles of reinsurance and provided easy-to-understand,useful training to people in the field.

Cash in bank

Monetary receivables bought

Money held in trust

Securities

Loans

Land and buildings

Total

7.16%

0.07

1.90

70.53

2.14

4.20

86.00%

100.00%

¥ 32,591

306

8,633

321,094

9,755

19,136

¥391,516

(8.32%)

(0.08)

(2.21)

(82.01)

(2.49)

(4.89)

(100.00%)

Invested Assets 2002(Millions of yen)

Total assets ¥455,262

Note: Figures in parentheses show percentage of total invested assets. Year ended 31st March 2002.

East Asia “Workshop”

Since 2000, we have sent staff from the head office to major urban centers to give lecturesat our “Workshop” events. We regard these events as opportunities to enhance services andstrengthen our relationships with clients in East Asia, and we offer information on the in-surance and reinsurance markets and systems of Japan as well as seminars outliningreinsurance practices. We have earned high praise from local participants who acknowledgethe easy-to-understand presentations as time well spent.

Asian Reinsurers’ Summit

The global reinsurance market is in the midst of tremendous change, and all reinsurers, including those in Asia, must respond accu-rately and uniformly to developments occurring in this era of transformation. With this in mind, reinsurers based in Asia gathered inShenzhen, China, in June 2001, for the inaugural Asian Reinsurers’ Summit. The underlying premise of this and future summits is topromote greater cooperation among reinsurers in this region. Now an annual event, the summit brings together the top reinsurers inAsia to exchange information and opinions on topics directly impacting the reinsurance market in Asia. In April 2002, Toa Re hosted the second summit. The Tokyo meeting was attended by representatives from reinsurance compa-nies headquartered in the PRC, India, Malaysia, Indonesia, Singapore, Thailand, South Korea and Hong Kong. Discussions revolvedaround the creation of systems for exchanging information, expanding business opportunities, and sharing accumulated expertiseand human resources. This marked the first real step toward the establishment of a cooperative framework among Asian reinsurers.

15

Thousands ofMillions of yen U.S. dollars

2002 2001 2002

FireNet premiums written ¥034,393 ¥030,034 $258,108Net claims paid 17,387 18,418 130,484Net loss ratio 50.6% 61.3%

MarineNet premiums written 7,464 6,595 56,015Net claims paid 5,184 5,026 38,904Net loss ratio 69.4% 76.2%

MotorNet premiums written 28,955 35,269 217,298Net claims paid 23,280 34,785 174,709Net loss ratio 80.4% 98.6%

LiabilityNet premiums written 27,269 18,173 204,645Net claims paid 9,980 6,493 74,896Net loss ratio 36.6% 35.7%

Life ReinsuranceNet premiums written 8,274 9,565 62,093Net claims paid 4,320 3,988 32,420Net loss ratio 52.2% 41.7%

OthersNet premiums written 19,758 19,398 148,277Net claims paid 14,708 13,089 110,378Net loss ratio 74.4% 67.5%

Total

Net premiums written ¥126,115 ¥119,037 $946,454Net claims paid 74,861 81,800 561,808Net loss ratio 59.4% 68.7%

Consolidated Summary of Premiums Written/Claims Paid/Loss RatioThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesYears ended 31st March 2002 and 2001

16

Consolidated InvestmentsThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesYears ended 31st March 2002 and 2001

Invested Assets Thousands ofMillions of yen Percentage of total U.S. dollars

2002 2001 2002 2001 2002

Cash in bank ¥032,591 ¥018,309 7.16% 5.40% $0,244,585Monetary receivables bought 306 300 0.07 0.09 2,296Money held in trust 8,633 9,138 1.90 2.70 64,787Securities 321,094 193,434 70.53 57.10 2,409,711Loans 9,755 9,482 2.14 2.80 73,208Land and buildings 19,136 17,673 4.20 5.22 143,609

Total 391,516 248,338 86.00 73.31 2,938,206Total assets ¥455,262 ¥338,773 100.00% 100.00% $3,416,600

Securities Thousands ofMillions of yen Percentage of total U.S. dollars

2002 2001 2002 2001 2002

Government bonds ¥010,544 ¥010,184 3.28% 5.26% $0,079,129Municipal bonds 11,374 10,920 3.54 5.65 85,358Corporate bonds 16,398 16,247 5.11 8.40 123,061Stocks 139,915 35,922 43.58 18.57 1,050,018Foreign securities 136,155 108,422 42.40 56.05 1,021,801Other securities 6,705 11,737 2.09 6.07 50,318

Total ¥321,094 ¥193,434 100.00% 100.00% $2,409,711

Interest and Dividend Income Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Cash in bank ¥00,467 ¥00,562 $03,504Call loans — 9 —Money held in trust 104 47 780Securities 10,357 9,951 77,726Loans 147 177 1,103Land and buildings 162 162 1,215

Subtotal 11,238 10,911 84,337Others 379 346 2,844

Total ¥11,617 ¥11,257 $87,181

Overseas Investment Thousands ofMillions of yen Percentage of total U.S. dollars

2002 2001 2002 2001 2002

Foreign currencyForeign bonds ¥122,474 ¥088,415 77.25% 73.53% $0,919,129Foreign stocks 8,816 8,609 5.56 7.16 66,161Others 23,310 11,370 14.70 9.45 174,934Subtotal 154,601 108,394 97.51 90.14 1,160,232

YenNonresident loans 438 456 0.28 0.38 3,287Foreign bonds 3,512 10,888 2.21 9.06 26,356Others — 510 .— 0.42 —Subtotal 3,951 11,854 2.49 9.86 29,651

Total ¥158,552 ¥120,249 100.00% 100.00% $1,189,883

Note: Foreign-currency-denominated “Others” in the previous consolidated fiscal period consisted entirely of foreign-currency-denominated deposits,and yen-denominated “Others” consisted entirely of yen-denominated foreign investment trusts. In the consolidated fiscal period under review,the largest component of foreign-currency-denominated “Others” was from deposits, totaling ¥22.0 billion.

17

Market Value InformationMillions of yen

Market UnrealizedAs of 31st March 2001 Book value value gain (loss)

Securities for which market value exceeds book valueGovernment, municipal and corporate bonds ¥036,702 ¥040,000 ¥003,297Stocks 28,760 163,912 135,151Foreign securities 95,235 99,051 3,816Other securities 1,803 7,026 5,222

Subtotal ¥162,502 ¥309,990 ¥147,487Securities for which market value does not exceed book value

Government, municipal and corporate bonds ¥000,650 ¥000,646 ¥ (3)Stocks 6,249 5,227 (1,022)Foreign securities 11,545 11,299 (246)Other securities 3,303 2,601 (702)

Subtotal ¥021,749 ¥019,774 ¥ (1,974)

Total ¥184,251 ¥329,764 ¥145,512

Millions of yen Thousands of U.S. dollars

Carrying Market Unrealized Carrying Market UnrealizedAs of 31st March 2002 value value gain (loss) value value gain (loss)

Securities for which market value exceeds carrying value

Government, municipal and corporate bonds ¥031,965 ¥034,353 ¥002,388 $0,239,887 $0,257,808 $017,921Stocks 22,977 126,224 103,247 172,435 947,272 774,836Foreign securities 92,025 98,716 6,690 690,619 740,833 50,206Other securities 1,320 4,775 3,455 9,906 35,834 25,928

Subtotal ¥148,288 ¥264,070 ¥115,782 $1,112,855 $1,981,763 $868,908Securities for which market value does not exceed carrying value

Government, municipal and corporate bonds ¥004,114 ¥003,964 ¥000(150) $0,030,874 $0,029,748 $0,(1,125)Stocks 14,952 12,308 (2,643) 112,210 92,367 (19,834)Foreign securities 37,010 34,921 (2,089) 277,748 262,071 (15,677)Other securities 482 295 (187) 3,617 2,213 (1,403)

Subtotal ¥056,559 ¥051,489 ¥0,(5,069) $0,424,457 $0,386,409 $,(38,041)Total ¥204,847 ¥315,560 ¥110,712 $1,537,313 $2,368,180 $830,859

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Consolidated Balance SheetsThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesAs of 31st March 2002 and 2001

Thousands ofASSETS Millions of yen U.S. dollars

2002 2001 2002

Cash and deposit ¥032,592 ¥018,312 $0,244,592Monetary receivables bought 306 300 2,296Money held in trust 8,633 9,138 64,787Securities 321,094 193,434 2,409,711Loans 9,755 9,482 73,208Property and equipment 20,233 18,911 151,842Other assets 53,568 40,282 402,011

(including overseas reinsurance receivable amounting to¥25,160 million (US$188,818 thousand) and ¥13,497 millionfor 2002 and 2001, respectively)

Deferred tax asset 9,383 48,083 70,416Unamortized excess of net assets over cost 22 45 165Customers’ liabilities for acceptance and guarantees — 1,000 —Less-Allowance for doubtful accounts (327) (219) (2,454)

Total assets ¥455,262 ¥338,773 $3,416,600

The accompanying notes are an integral part of the statements.

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Thousands ofLIABILITIES AND SHAREHOLDERS’ EQUITY Millions of yen U.S. dollars

2002 2001 2002

LiabilitiesUnderwriting fund

Outstanding claims ¥144,414 ¥102,188 $1,083,782Underwriting reserves 160,874 164,623 1,207,309

305,288 266,811 2,291,091Other liabilities 20,435 18,558 153,358Accrued retirement benefits to employees 2,307 2,086 17,313Reserve for price fluctuations 5,973 5,337 44,825Acceptances and guarantees — 1,000 —

Total liabilities ¥334,004 ¥293,793 $2,506,596

Shareholders’ EquityShare capital

Common stockAuthorized: 400,000,000 shares at 31st March 2002 and 2001Issued: 100,000,000 shares at 31st March 2002 and 2001 5,000 5,000 37,523

Additional paid-in capital 0 0 0Retained earnings 46,406 47,105 348,262Net unrealized gains on available-for-sale securities 70,965 — 532,570Foreign currency translation adjustments (1,113) (7,125) (8,352)

Total shareholders’ equity ¥121,257 ¥044,979 $0,909,996Total liabilities and shareholders’ equity ¥455,262 ¥338,773 $3,416,600

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Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Ordinary Income and ExpensesOrdinary income

Underwriting incomeNet premiums written ¥126,115 ¥119,050 $0,946,454Investment income on deposit premiums 279 322 2,093Reversal of underwriting reserves 4,726 13,205 35,467Other underwriting income 642 374 4,818

131,764 132,952 988,848Investment income

Interest and dividend income 11,513 11,209 86,401Profit on sales of securities 12,178 4,842 91,392Profit on redemption of securities 5 — 37Other investment income 709 649 5,320Transfer of investment income on deposit premiums (279) (322) (2,093)

24,126 16,379 181,058Other ordinary income 324 282 2,431

156,215 149,614 1,172,345Ordinary expenses

Underwriting expensesNet claims paid 74,861 82,574 561,808Commissions and brokerage 31,562 33,911 236,863Provision for outstanding claims 35,809 2,250 268,735Other underwriting expenses 1,712 7,235 12,848

143,946 125,972 1,080,270Investment expenses

Loss on money held in trust 483 630 3,624Loss on sales of securities 1,280 864 9,606Loss on revaluation of securities 345 3,235 2,589Loss on redemption of securities 1,567 2,002 11,759Loss on derivatives 24 558 180Other investment expenses 33 9 247

3,734 7,299 28,022Underwriting and general administrative expenses 9,280 8,729 69,643Other ordinary expenses

Interest expenses 18 36 135Provision for allowance for doubtful accounts 141 99 1,058Other expenses 122 237 915

282 373 2,116157,243 142,374 1,180,060

Ordinary profit (loss) ¥0,(1,028) ¥007,239 $ ,00(7,714)

The accompanying notes are an integral part of the statements.

Consolidated Statements of Profit and LossThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesFor the years ended 31st March 2002 and 2001

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Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Extraordinary Profit and LossExtraordinary profit

Gain on sales of property and equipment ¥0,317 ¥ — $02,378Reversal of reserve for price fluctuations — 238 —

317 238 2,378Extraordinary loss

Loss on sales of property and equipment 27 3 202Provision for reserve for price fluctuations 636 — 4,772Recognition of net transition liabilities at application of the new accounting standard for retirement benefits — 1,941 —

664 1,944 4,983Income (loss) before income taxes (1,374) 5,533 (10,311)Income taxes—current (263) 422 (1,973)Income taxes—deferred (1,073) 476 (8,052)Net income (loss) ¥00(37) ¥4,633 $ 0,(277)

Consolidated Statements of Retained EarningsThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesFor the years ended 31st March 2002 and 2001

Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Consolidated retained earnings at beginning of year ¥47,105 ¥42,974 $353,508

Increase in consolidated retained earningsIncrease in retained earnings due to decrease in consolidated subsidiaries — 107 —

Decrease in consolidated retained earningsDividends 650 600 4,878Directors’ bonuses 11 11 82

Net income (loss) (37) 4,633 (277)Consolidated retained earnings at end of year ¥46,406 ¥47,105 $348,262

Note: The entire amount of Directors’ bonuses was paid to directors.

The accompanying notes are an integral part of the statements.

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Consolidated Statements of Cash FlowsThe Toa Reinsurance Company, Limited, and Consolidated SubsidiariesFor the years ended 31st March 2002 and 2001

Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Cash flows from operating activitiesIncome (loss) before income taxes ¥0(1,374) ¥005,533 $0(10,311)Depreciation and amortization 588 641 4,412Amortization of excess of cost over net assets 22 22 165Increase in outstanding claims 35,809 2,250 268,735Decrease in underwriting reserves (4,726) (13,205) (35,467)Increase in allowance for doubtful accounts 141 99 1,058Increase in accrued retirement benefits to employees 209 2,082 1,568Increase in accrued bonus to employees 1 4 7Increase (decrease) in reserve for price fluctuations 636 (238) 4,772Interest and dividend income (11,513) (11,209) (86,401)Loss (gain) on securities (8,991) 1,259 (67,474)Interest expenses 18 36 135Foreign exchange gain (697) (458) (5,230)Loss (gain) on property and equipment (287) 6 (2,153)Loss on money held in trust 483 — 3,624Decrease (increase) in other assets (other than investing and financing activities) (12,565) 13,507 (94,296)Increase (decrease) in other liabilities (other than investing and financing activities) 1,237 (2,974) 9,283Others 9 630 67

Subtotal (998) (2,012) (7,489)Interest and dividends received 11,899 10,877 89,298Interest paid (15) (34) (112)Income taxes paid (5) (769) (37)Income taxes refunded 915 771 6,866

Net cash provided by operating activities 11,796 8,833 88,525

Cash flows from investing activitiesNet increase in deposits (1,247) (198) (9,358)Increase in money held in trust — (7,000) —Investment in securities (58,573) (68,477) (439,572)Proceeds from sales or redemption of securities 58,186 65,527 436,667Loans issued (2,161) (3,576) (16,217)Proceeds from collection of loans 1,889 4,818 14,176Purchase of property and equipment (2,328) (1,276) (17,470)Proceeds from sales of property and equipment 788 1 5,913

Net cash used in investing activities (3,446) (10,179) (25,861)

Cash flows from financing activitiesProceeds from issuance of commercial paper 14,000 20,000 105,065Repayment of commercial paper (19,000) (20,000) (142,589)Increase (decrease) in other liabilities 5,000 (5,000) 37,523Dividends paid (650) (600) (4,878)

Net cash used in financing activities (650) (5,600) (4,878)

Effect of exchange rate changes on cash and cash equivalents 942 261 7,069Net increase (decrease) in cash and cash equivalents 8,641 (6,685) 64,848Cash and cash equivalents at beginning of year 22,012 28,880 165,193Decrease in cash and cash equivalents due to decrease in consolidated subsidiaries — (182) —Cash and cash equivalents at end of year ¥(30,653 ¥022,012 $(230,041

The accompanying notes are an integral part of the statements.

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Notes to the Consolidated Financial Statements

December. Since the difference in the fiscal year ends doesnot exceed three months, financial statements as of the fiscalyear end of each subsidiary are used in preparing the consoli-dated financial statements, except for The Toa 21st CenturyReinsurance Co., Ltd. As for major transactions occurringbetween that date and the date of the Companies’ fiscal yearend, necessary adjustments are made upon consolidation.

The Toa 21st Century Reinsurance Co., Ltd. was estab-lished in January 2002, therefore, in preparing the consoli-dated financial statements, the financial statements of TheToa 21st Century Reinsurance Co., Ltd. for the transientperiod ended 31st March 2002, based on ordinary year-endclosing process, was used.

5. Basis of Accounting Principles(1) Financial Instruments

Until the year ended 31st March 2000, securities havingmarket quotations were stated at the lower of cost or marketvalue (reversal method), cost being determined by the mov-ing average method, and securities without market quota-tions were stated at cost, determined by the moving averagemethod.

Effective from the year ended 31st March 2001, the Com-pany and its subsidiaries adopted the new Japanese account-ing standard for financial instruments except for the standardto be applied for available-for-sale securities for which mar-ket quotations are available, which is effective for periodsbeginning on or after 1st April 2000. As a result of adoptionof the new standard, income before income taxes for the yearended 31st March 2001 has decreased by ¥3,886 million, ascompared with the amount which would have been reportedif the previous standard had been applied consistently.

Effective from the year ended 31st March 2002, theCompany and its subsidiaries adopted the new standard foravailable-for-sale securities for which market quotations areavailable, which is effective for periods beginning on or after1st April 2001. As a result of adoption of the new standard,net unrealized gains on available-for-sale securities amount-ing to ¥70,965 million ($532,570 thousand) are reported asa separate item in the shareholders’ equity at a net-of-tax.The related deferred tax liabilities amounting to ¥40,152million ($301,328 thousand) is netted against the deferredtax assets.a) Securities

Under the new standard mentioned above, the securitiesheld by the Company and its consolidated subsidiaries areclassified as “available-for-sale securities”.

For the year ended 31st March 2001, available-for-salesecurities, for which market quotations may or may not beavailable, are valued at cost or amortized cost calculatedusing the moving average method. Total fair value ofavailable-for-sale securities, for which market quotationswere available, was ¥338,179 million corresponding tothe total carrying amount of ¥192,666 million at 31stMarch 2001. Net unrealized gains on the securities andrelated deferred tax liabilities, which would have beenreported if the new standard had been applied, were¥92,843 million and ¥52,669 million, respectively.

For the year ended 31st March 2002, available-for-salesecurities with market quotations are carried at fair valuebased on the prices prevailing in the market on the bal-

1. Basis of Presenting the Consolidated FinancialStatements

(1) The accompanying consolidated financial statements havebeen prepared from the accounts maintained by The ToaReinsurance Company, Limited (the “Company”), and itssubsidiaries (collectively, the “Companies”) in accordancewith the provisions set forth in the Japanese CommercialCode, the Securities and Exchange Law, the Insurance Busi-ness Law and related regulations, and in conformity with ac-counting principles and practices generally accepted in Japan,which are different in certain respects as to the application anddisclosure requirements of International Accounting Stan-dards.

The consolidated financial statements are not intended topresent the consolidated financial position, results of oper-ations and cash flows in accordance with accounting prin-ciples and practices generally accepted in countries andjurisdictions other than Japan.

(2) Amounts in U.S. dollars are included solely for the conve-nience of readers outside Japan. The rate of ¥133.25=US$1,the rate of exchange on 31st March 2002, has been used intranslation. The inclusion of such amounts is not intended toimply that Japanese yen have been or could be readily con-verted, realized or settled in U.S. dollars at the rate or anyother rate.

(3) Fractional amounts of less than ¥1 million or $1 thousandhave been rounded down.

2. Scope of Consolidation(1) Of the Company’s subsidiaries, six and five subsidiaries are

consolidated for the year ended 31st March 2002 and 2001,respectively. The names of the consolidated subsidiaries as of31st March 2002 are as follows:

• The Toa Reinsurance Co. of America• Toa Re Services Inc.• The Toa-Re Insurance Co., (U.K.) Ltd.• Toa Re Underwriting Management Ltd.• Toa Re Management Services Ltd.• The Toa 21st Century Reinsurance Co., Ltd.

The Toa 21st Century Reinsurance Co., Ltd., which wasnewly established in Switzerland this year, is included in con-solidated subsidiaries for the year ended 31st March 2002.

(2) Nonconsolidated SubsidiariesSundai Company, Limited, Asia Security Reinsurance AgencyLtd. and The Toa Re Services do Brasil Ltda. are small-scaleoperations, in terms of the consolidated total assets, the con-solidated ordinary profit (loss), the consolidated net income(loss) for the year and the consolidated retained earnings,and are excluded from the scope of consolidation due totheir insignificant effect on the consolidated financialstatements of the Companies.

3. Application of Equity MethodThe effect exerted by three nonconsolidated subsidiaries onthe consolidated net income (loss) for the year and the con-solidated retained earnings is negligible and, accordingly, thecompanies are excluded from equity-method calculations.

4. Fiscal Years of Consolidated SubsidiariesThe fiscal year end of all consolidated subsidiaries is 31st

24

ance sheet date. Unrealized gains or losses are included ina separate component of shareholders’ equity. Cost forsales is calculated at cost determined by the moving aver-age method. Available-for-sale securities without availablemarket quotations are recorded at cost or amortized costdetermined by the moving average method.

b) Money held in trustSecurities included in money held in trust are carried atfair value with changes in fair value included in net in-come or loss for the year.

c) DerivativesDerivatives are carried at fair value with changes in fairvalue included in net income or loss for the year.

(2) Depreciation Method for Property and EquipmentDepreciation of property and equipment in possession is cal-culated by the declining balance method based on estimateduseful lives.

However, the depreciation of buildings, except for theirattached facilities, purchased subsequent to 1st April 1998,is calculated by the straight-line method.

Depreciation of property and equipment held by consoli-dated subsidiaries is calculated by the straight-line methodbased on estimated useful lives.

(3) Accounting Policies for Major Reservesa) Allowance for Doubtful Accounts

The Company books an allowance for doubtful accounts,in accordance with the standard for self-assessment ofassets and rules for write-offs and provisions, as follows:(i) For debts of debtors who are legally bankrupt (due to

bankruptcy, special liquidation or suspension of ser-vice at clearing houses, etc.) or virtually bankrupt, areserve is provided based on the amount that remainsafter anticipated proceeds from the disposal of collat-eral and the recovery of debt through guarantees arededucted from the debt balances.

(ii) For debts of debtors who are likely to become bank-rupt, a reserve is provided based on the amount con-sidered to be necessary to cover the amount thatremains after anticipated proceeds from the disposalof collateral and the recovery of debt through guaran-tees are deducted from the debt balances. This reserveamount is based on an overall judgment regarding thesolvency status of each debtor.

(iii) For debts other than those described above, a reserveis provided for an amount determined by multiplyingdebt balances by a historical loan loss experience.

All debts are assessed by each asset management depart-ment of the Company in accordance with the standard forasset self-assessment, and then audited by Internal AuditDepartment which is independent from each department.Allowance for Doubtful Accounts mentioned above iscomputed based on the results of this assessment.

b) Accrued Retirement Benefits to EmployeesPrior to the year ended 31st March 2000, the Companyhad booked the accrued retirement benefits to employeesequivalent to full coverage of retirement allowances lessthe portion transferred to tax-qualified pensions as if alleligible employees were to retire voluntarily at the balancesheet date.

Effective from the year ended 31st March 2001, theCompany adopted the new Japanese accounting standard

for retirement benefits, which is effective for periodsbeginning on or after 1st April 2000. In accordance withthe new standard, the accrued retirement benefits toemployees represent the estimated present value of pro-jected benefit obligations in excess of the fair value of theplan assets. As permitted under the new standard, thetransition amount arising from adopting the new standardof ¥1,941 million at 1st April 2000 (the beginning ofyear) has been fully amortized in the year ended 31stMarch 2001. The consolidated subsidiaries amortize priorservice costs over the average remaining service period ofemployees at the time of occurrence. The parent Com-pany fully amortizes actuarial differences in the followingyear. As a result of adopting the new standard, net pen-sion expense for the year ended 31st March 2001 hasincreased by ¥2,000 million and income before incometaxes has decreased by ¥2,000 million as compared with theamounts which would have been reported if the previousstandard had been applied consistently.

c) Accrued bonus to employeesThe Company accrues for employees’ bonuses on thebasis of the estimated amounts to be paid.

d) Reserve for Price FluctuationsThe Company books the reserve for price fluctuations inaccordance with Article 115 of the Insurance BusinessLaw to provide for contingent losses caused by pricefluctuations on stocks and other investments.

(4) Foreign Currency TranslationFor the year ended 31st March 2000, current monetary assetsand liabilities denominated in foreign currencies have beentranslated into Japanese yen at the rate of exchange in effectat the balance sheet date. Long-term monetary assets andliabilities denominated in foreign currencies have beentranslated at the historical exchange rate.

Effective from the year ended 31st March 2001, the Com-pany adopted the new Japanese accounting standard forforeign currency translation, which is effective for periodsbeginning on or after 1st April 2000. Under the new standard,all monetary assets and liabilities denominated in foreigncurrencies, whether long-term or short-term, are translatedinto Japanese yen at the exchange rates prevailing at the bal-ance sheet date. Resulting gains and losses are included innet profit or loss for the period. The adoption of the newmethod had no impact on the accompanying consolidatedfinancial statements.

(5) Translation of Foreign Currency Financial Statements(Accounts of Overseas Subsidiaries)For the year ended 31st March 2000, the translation of assetsand liabilities and revenues and expenses had been made atthe current rate, while the translation of capital stock hadbeen made using the historical rates. In this regard, a certainadjusting account had been set up for the reconciliation ofthe account balances. Such adjusting account is shown as anasset titled “Foreign currency translation adjustments” in theaccompanying consolidated financial statements.

Effective from the year ended 31st March 2001, the Com-panies adopted the new Japanese standard for the method oftranslating foreign currency financial statements of overseassubsidiaries into Japanese yen, which is effective for periodsbeginning on or after 1st April 2000. Under the new stan-dard, assets and liabilities of the overseas subsidiaries are

25

translated into Japanese yen at the exchange rates prevailingat the balance sheet date. The shareholders’ equity at begin-ning of the year is translated into Japanese yen at the histori-cal rates. Profit and loss accounts for the year are translatedinto Japanese yen using the average exchange rate during theyear or, alternatively, using the exchange rates prevailing atthe balance sheet date. Differences in yen amounts arisingfrom the using of different rates are presented as “Foreigncurrency translation adjustments” in shareholders’ equity.

(6) Consumption Tax Accounting TreatmentConsumption tax is accounted for separately from thetransactions subject to such tax. However, the consumptiontax on certain expenses, such as underwriting and generaladministrative expenses, is included in those expenses.Undeductible consumption tax on the purchase of assets isincluded in other assets and amortized evenly over a periodof five years.

(7) Lease TransactionsFinance leases other than those which deemed to transferthe ownership of the leased assets to the lessee are accountedfor by the method similar to that applicable to ordinaryoperating leases.

6. Valuation of Consolidated Subsidiaries’ Assetsand Liabilities at acquisition dateThe consolidated subsidiaries’ assets and liabilities are basedon the fair values of the subsidiaries at acquisition date.

7. Amortization of Excess of Net Assets Over CostsAmortization of excess of net assets over costs is calculated ona straight line basis over five years.

8. Appropriation of Retained EarningsThe consolidated statements of retained earnings are basedupon the appropriation of retained earnings as determined inthe year.

9. Cash and Cash EquivalentsCash and cash equivalents in the consolidated statements ofcash flows comprise cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with anoriginal maturity of three months or less and which haveminimal risk of fluctuations in value.

(1) Reconciliation of the balance of cash and cash equivalents atend of year with the itemized amounts shown in the con-solidated balance sheet as of 31st March 2002 and 2001is as follows:

10. Deferred Tax Accounting(1) At 31st March 2002 and 2001, the significant components

of net deferred tax assets were as follows:Thousands of

Millions of yen U.S. dollars

2002 2001 2002

Deferred tax assetsUnderwriting reserves ¥31,497 ¥36,544 $236,375Outstanding claims 3,909 2,481 29,335Accrued retirement benefits 833 753 6,251Reserve for price fluctuations 2,162 1,932 16,225Tax losses carried forward 10,199 5,018 76,540Others 1,556 1,814 11,677

Total deferred tax assets ¥50,159 ¥48,545 $376,427

Deferred tax liabilitiesDeferred policy acquisition costs (623) (461) (4,675)Net unrealized gains on available-for-sale securities (40,152) — (301,328)

Total deferred tax liabilities (40,775) (461) (306,003)

Net deferred tax asset ¥09,383 ¥48,083 $070,416

Deferred tax assets relating to tax losses carried forward arerecorded because the Japanese accounting standard requiresthat the benefit of tax losses carried forward be estimated andrecorded as assets, with deduction of a valuation allowanceif it is expected that some portion or all of the deferred taxassets will not be realized.

(2) At 31st March 2001, the reconciliation of the statutory taxrate to the effective income tax rate is as follows:

Percent

2001

Statutory tax rate 36.2%(Adjustments)

Non-deductible expenses, including entertainment expenses 2.6Non-taxable income, including dividends received (15.1)Indirect foreign tax credit (5.4)Other (2.0)

Effective income tax rate 16.3%

For the year ended 31st March 2002, the data is not reported because theCompanies had loss before income taxes.

Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Cash and deposit ¥032,592 ¥018,312 $0,244,592Securities 321,094 193,434 2,409,711Term deposits for which the duration exceeds three months (3,987) (2,001) (29,921)Securities other than cash equivalents (319,046) (187,734) (2,394,341)

Cash and cash equivalents ¥030,653 ¥022,012 $0,230,041

(2) Cash flows from investing activities include those related toinsurance business.

11. Impaired LoansThere was no balance of impaired loans, including loans toborrowers under bankruptcy proceedings, non-accrual pastdue loans, loans past due for three months or more and loanswith altered lending conditions, as at 31st March 2002 and2001.

The definitions of impaired loans are as follows:(1) “Loans to borrowers under bankruptcy proceedings” are

loans for which circumstances apply as stated in the Imple-mentation Ordinances for the Corporation Tax Law (Gov-ernment Ordinance No. 97, 1965) among non-accrual loans(excluding loans written off ) which have no prospects forrecovery or repayment of principal or interest, or for whichpayment of principal or interest has not been received for asubstantial period, or for other reasons.

(2) “Non-accrual past due loans” are those loans on whichaccrued interest income has not been recognized on those

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loans, excluding loans to borrowers under bankruptcy pro-ceedings and excluding loans for which interest paymentshave been rescheduled with the objective of assisting theseborrowers in management restructuring.

(3) “Loans past due for three months or more” are those loansfor which payments of principal or interest has not beenreceived for a period of three months or more, beginningwith the next business day following the last due date forsuch payments, and are not included in loans to borrowersunder bankruptcy proceedings or non-accrual past due loans.

(4) “Loans with altered lending conditions” are those loans forwhich the Company has provided more favorable terms andconditions—including reducing interest rates, reschedulinginterest and principal payments, or the waiving of claims onthe borrower—to the borrower than those contained in theoriginal loan agreement, with the aim of providing restruc-turing assistance and support. Such loans exclude loans toborrowers under bankruptcy proceedings, non-accrual pastdue loans and loans past due for three months or more.

12. Retirement BenefitsThe Company and its subsidiaries have defined benefitretirement plans covering substantially all employees.

The balance of accrued retirement benefits to employees asof 31st March 2002 and 2001 is analyzed as follows:

Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Projected benefit obligations ¥(5,675) ¥(5,220) $(42,589)Plan assets 3,501 3,162 26,273

(2,173) (2,057) (16,307)Unrecognized actuarial differences (41) 28 (307)Unrecognized prior service cost (91) (57) (682)

Accrued retirement benefits to employees ¥(2,307) ¥(2,086) $(17,313)

Retirement benefit cost for the year ended 31st March 2002and 2001 is as follows:

Thousands ofMillions of yen U.S. dollars

2002 2001 2002

Service cost ¥284 ¥0,263 $2,131Interest cost 179 163 1,343Expected return on plan assets (96) (105) (720)Amortization of transition amount — 1,941 —Amortization of unrecognized actuarial differences 28 — 210Amortization of unrecognized prior service costs 88 (2) 660

Retirement benefit cost ¥484 ¥2,260 $3,632

Assumptions used in calculation of the above information areas follows:

2002 2001

Discount rate Mainly 3.0% Mainly 3.0%Expected rate of return on plan assets Mainly 2.3% Mainly 3.0%Method of attributing the projected benefits to periods of services Straight-line basis Straight-line basisAmortization of unrecognized prior service cost 1 year for the Company, 7.5 years

9.7 years for consolidated (for consolidatedsubsidiaries subsidiaries)

Amortization of transition amount — 1 yearAmortization of actuarial differences 1 year 1 year

(fully amortized in (fully amortized infollowing year) following year)

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Consolidated Report of Independent Certified Public Accountants

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■HEAD OFFICE6, Kanda-Surugadai 3-chome,Chiyoda-ku, Tokyo 101-8703, JapanTelephone: 81-3-3253-3171Facsimile: 81-3-3253-1208URL: http://www.toare.co.jp

■DATE ESTABLISHED15th October 1940

■NUMBER OF SHARES OF COMMON STOCKAuthorized: 400,000,000Issued: 100,000,000

■PAID-IN CAPITAL¥5,000 million

■TOTAL ASSETS¥368,517 million

■NUMBER OF EMPLOYEES297

■LINES OF BUSINESSLife ReinsuranceCo-operative Non-Life ReinsuranceCo-operative Life ReinsuranceandReinsurance of the following:Fire InsuranceMarine InsuranceTransit InsurancePersonal Accident InsuranceVoluntary Automobile InsuranceCompulsory Automobile Liability InsuranceShipowners’ Liability Insurance for Passengers’ Personal AccidentAviation InsuranceTheft InsuranceGuarantee Insurance (including Surety Bond)Machinery InsuranceContractors’ All Risks InsuranceAtomic Energy InsuranceGeneral Liability InsuranceMovables Comprehensive InsuranceCredit InsuranceBoiler and Turbo-Set InsuranceGlass InsuranceWindstorm and Flood InsuranceLivestock InsuranceWorkers’ Accident Compensation Liability InsuranceMiscellaneous Pecuniary Loss Insurance

Corporate DataThe Toa Reinsurance Company, LimitedAs of 31st March 2002

■PRESIDENT AND CHIEF EXECUTIVEShinya Yoshikoshi

■SENIOR MANAGING DIRECTORSYoshio ShimizuShinya Shimohira

■MANAGING DIRECTORSTeruhiko OhtaniKen TakiTamihiko MiyamuraHiroshi Fukushima

■DIRECTORSShunichi SakumaRyosuke KojimaKazuo HataMitsuaki FurukawaTakashi Toyota

■AUDITORSKatsunori MoriTakaya ImashimizuHiroki Sugimoto

Board of DirectorsThe Toa Reinsurance Company, LimitedAs of 27th June 2002

Printed in Japan with soy ink on paper made from kenaf pulp